Business RX: Advice for entrepreneurs on how to improve or launch a startup

May 27, 2014

Liz Sara is an entrepreneur-in-residence at the Dingman Center for Entrepreneurship at the University of Maryland's Robert H. Smith School of Business. She's here to take your questions about securing funding, building your customer base, how the entrepreneurship landscape looks in this region, and more.

Hi Liz,

Thanks for joining us today. One challenge entrepreneurs often face is in recruiting talent, since they can't always offer a steady paycheck. What advice do you have for start-up leaders as they try to find and lure the right kind of workers for their team?

A:

I am delighted to be back. Attracting the right talent is tough, even when the funds ARE available. One option for companies with limited funds to offer is to try to get the potential hire to agree to deferred salary for some period of time. This way, there is a light at the end of the tunnel.

How important is it for a start-up to establish an advisory board? What exactly is the best role for this group and what kinds of people/skills do you want it to include?

A:

Advisory Boards can really help by providing experienced people who have deep knowledge of the market, the technology or contacts -- even all of the above. Advisors typically fill the gaps in the team and often prevent missteps...or a lot of trial and error that wastes time. Entrepreneurs should assess which areas require some outside experience, and find advisors who can fit that role. Usually advisors receive some nominal stock options. It's well worth it.

How do you whether it makes sense for your business to pursue angel funding? How do you best make your case to these kinds of investors?

A:

Well, angel funding should only be considered AFTER all other possible sources of money are exhausted -- family, grandparents, credit cards, whatever. THEN, it should only be considered when the company is "market-ready." By that I mean that the product is finished, there are some customers (paying ones) and there is some revenue. Lately, angels have not been quick to invest in companies in which the product still needs some work before it is done.

As a follow-up to your last answer,why do you think angel investors are currently in that mind-set?

A:

Basically, angel investing is high-risk investing. If one out of 10 deals make it, that's a lot. So, angels want to see some market traction to essentially prove the business idea/model. It's not to say that early traction is a sign of future success...just a start on the path.

How do I project how much income I will make with a startup? I know how much money I make with my current full-time job and how much I need to continue paying the bills. I know how much I need to charge per hour for the services, I just don't know how quickly I will have paying customers needed to reach the income goals I have set. How do I figure out how quickly things will progress once started? I know that unrealistic goals will only cause frustration while not helping the business.

A:

It's very hard to guess -- a lot depends on the price you are charging for whatever the services are, how many competitors are offering the same thing and how easy/difficult it will be to target the right customers. I would not go into it thinking you will immediately be making money. A lot of founders don't even take a salary for the first year or so. You should be prepared for some time period to build the business during which there is low/no salary...maybe you can start it on the side?

What are the most important criteria to consider when you're trying to settle on business partners for your start-up?

A:

There are a few really important things: First -- you all need to have the same long-term goals for the company, whatever those are. If one sees it as a short flip while another sees it as a long term business, there will be conflict. Second -- there should be complementary skill sets. If everyone is a rock star software developer and nobody has actual business experience, well, I need say no more. Third, maybe you really don't need a partner -- just some talented hires. They are much easier, and less expensive to replace.

Plenty of local entrepreneurs have flocked to the start-up incubator 1776 in downtown Washington. What do you think are the pros and cons of getting one's business into one of these programs or facilities? What kind of impact do they have overall on the local start-up scene?

A:

1776 is one of many in the region now. All of them play a really good role in building the support group for entrepreneurs. The shared office space is a great conduit to making contacts with other founders and indirectly getting opportunities or doors opened via those contacts. The organization also usually makes a small equity investment in the company -- small, seed-money infusion -- and in turn has a wide network of contacts that they are open to sharing with their portfolio companies. I know many of my clients have "graduated" out of one incubator or another and have very positive experiences overall. I encourage founders to look into them.

Speaking of 1776 and our other local incubators, what do you think are the unique challenges and advantages of being a start-up in the Washington region versus in other areas of the country?

A:

Apart from Silicon Valley, where there is seemingly endless investment capital for companies in all life cycle stages, the D.C. region is a booming place to start a company. Among the advantages, besides investors, are the availability of state money -- CIT for Virginia and Tedco for Maryland; the availability of talent, which is so very key to building a company; and the availability of cashed-out and serial entrepreneurs that are ready to be tapped as mentors, advisers or even part-time executive leaders for a period of time. I see no downsides.

Building customer awareness is an essential part of getting a start-up off the ground. What mistakes do you see entrepreneurs make most often when it comes to marketing and branding issues?

A:

I would say the single largest mistake that most startups make is having the wrong message about their product or offering. By that, I mean that the founders tend to overlook what the value of their offering is to their buyers...and instead highlight all the cool features. Those are truly secondary -- first and foremost is being able to tell a compelling story about why this product or offering solves an important problem. Without that, it will be an uphill battle to get the mindshare of the target audience.